D7.5177 Taxing the transfer
The rules in this division apply for accounting periods beginning before 1 January 2013. For accounting periods beginning on or after 1 January 2013 see Division D7.4.
In addition to clarifying the mechanics of apportionment, FA 2003 codified the scope of receipts to be included in a company's notional Case I computation by reference to inclusions on and exclusions from Form 40 of the regulatory return. These amendments also affect the way that transactions accounting for transfers of business are taxed.
FA 1989, ss 82 and 83 (see D7.5100) make it explicit that items recorded on lines 15 and 31 of Form 40 of the regulatory return are charged to tax1. Any assets moving to the transferee under an insurance business transfer scheme will normally be included at line 31 and will accordingly be charged to tax, neutrality being maintained by the corresponding deduction for the liabilities assumed. If however there is a transfer of assets in excess of the liabilities assumed, that excess is not treated as other income because in broad terms it represents unappropriated surplus available for future policy holder bonuses that has already been taxed2.
When this legislation was originally introduced in Finance Bill 2003 it included a provision dealing with the opposite position by charging tax on a transfer which involved an excess of liabilities over assets. This proposed legislation was dropped during the parliamentary debates on the Bill following industry lobbying. HMRC had however seen examples of companies using a transfer of